The business model for financial advisors serving individuals and families has evolved over the past 35 years but clients have now made it clear what they prefer and a definitive business model has now emerged. When most “financial advisors” first entered this business in the 1980s, and prior, as an advisor to individual clients, what we call “retail clients,” the role was more or less a sales position. For many financial advisors it still is a sales position, but a superior client-driven business model now exists. Back in the 1980s many “financial advisors sold investment securities for commissions. Others in may have sold insurance products or various services such as tax preparation or estate planning legal services, but things were very fragmented for the client. An affluent client typically had to build their own team.
By the 1990s many financial advisors become interested in financial planning as a service. So we saw many advisors pulling their clients financial affairs together through financial planning, but most were still compensated by commissions. What most advisors didn’t realize was that charging a client a percentage of their “assets under management” (AUM) was actually a form of “commission.” Charging for AUM implied that you would only advise, or were only compensated to care about, those assets for which you were charging your fee. Often left out of the conversation were local bank accounts, which were frequently quite large, as well as investment accounts managed by others, real estate investments as well as variable insurance products which other advisors had put in place for a client. Seldom did these disparate advisors for a client speak to each other or coordinate issues.
By the year 2000, a select category of high-end fiancial advisor recognized this coordination problem and began insisting upon establishing a comprehensive written lifetime financial strategy for every client. These select financial advisors realized that to begin comprehensively coordinating a client’s personal financial affairs there was significantly more time and work involved. To many advisors it became clear that “if we are going to offer a whole lot more value to each client we will only be able to serve a few clients.” To do it right, we came to believe that one advisor could properly serve a community of less than 100 Ideal Clients. The obvious solution was, and is, for an advisor to establish an exacting Ideal Client Profile, along with a substantially increased fee for service. A fee completely disconnected from any form of product sales, and no longer selling “Assets Under Management” money management services. As we observed these select advisors’ revenues rapidly soar so we began researching what the affluent really wanted from a financial advisor relationship. By 2010 the definitive model became quite clear and it’s a paradigm shift from the past models.
Today, financial advisors can still select the business model they prefer and not every client wants the same thing, but for affluent Potential Ideal Clients a preferred business model is now evident. As the number of affluent Potential Ideal Clients is growing every day and you contemplate your future business model consider what “the affluent” are hoping for today in their relationship with a financial advisor.
Simply stated, the new paradigm is an advisor who is “on top of everything all the time.” A highly proactive advisor who seems to be “ahead” of every issue, and fully understands each client’s perspective. An Advisor who can, and does, represent a client before others and attends every financial meeting with other financial professionals. An advisor who has no ulterior motives, earns nothing from products, and discloses every potential “conflict of interest.” Proffers a culture of complete transparency when it comes to how everyone involved with a client is being paid. Finally, the affluent of today value a financial advisor who is willing to coordinate everything. Rather than coordinating pieces & parts, this is an advisor who coordinates all personal financial affairs, including, and especially, the other financial people (accountants, lawyers, financial planner, money managers, insurance people, etc., etc.). An advisor who recognizes that the greatest value provided is the time being saved for an Ideal Client who has other things to attend to which matter more than money.
Be prepared, many affluent do not even believe advisors like this exist and have a hard time believing they could ever find an advisor who is both able & willing to effectively provide this type of relationship at any price. So you’ll have some convincing to do. Unfortunately many Potential Ideal Clients have likely encountered advisors in the past who have offered (promised) many of these things, but in the end, did not deliver. So if you jump into this river be prepared to fully deliver or perish. Affluent clients are smart and quickly discover the truth; but in the end this model is quite simple and elegant. Luckily, this new paradigm-shifting model is as much an attitude as it is a process. There’s no software required for your client to know and feel you’re protecting them, paying attention, coordinating everything and are exposing every potential conflict.
Potential Ideal Clients are willing to pay a substantial flat fee for this Comprehensive Financial Service if, and this is a big ‘if,” they are convinced all of these elements are in place and you can “deliver.” What if you had 75 Ideal Clients each compensating you $50,000 per year for you to coordinate their personal financial affairs, to get their “financial house” in perfect order, and keep it that way forever? If that appeals to you, then you should consider this “category killing” paradigm-shifting business model since, at present, most financial advisors are neither able nor willing to enter into a client relationship like this. The opportunity is enormous